A year after Apple announced its dividend, 'timing could be right' for another cash deployment

It's been almost a year since Apple announced its quarterly dividend and stock buyback plan, and with the company's annual shareholder meeting just concluded, one analyst believes Apple may soon reveal more uses for its $137 billion in cash.

It was March 19 of last year that Apple announced it would spend $45 billion over three years on a quarterly dividend and share repurchase program. On Monday, just over a week before that anniversary, analyst Brian White with Topeka Capital Markets said he thinks Apple is in a good position to announce its next move.

Apple added $38 billion in cash in fiscal 2011, but $16 billion in just the last quarter. Chart by Asymco.

"Given that Apple's recent shareholder meeting is out of the way and David Einhorn has completed his cash distribution campaign, the timing could be right for a bigger deployment of cash," he said.

While Apple held $137.1 billion in net cash at the end of the December quarter, White projects that money will grow to $241 billion by the end of Apple's fiscal year 2015. As the company's cash and investments continue to grow, some investors have heightened their calls for Apple to find a use for the money.

White believes Apple could increase its cash dividend from its current amount of $2.65 per share to between $3.75 and $5.00 per share on a quarterly basis, representing an annual yield of 3.5 percent to 4.6 percent.

Apple could also increase its stock repurchase program to as much as $100 billion as part of a 5-year initiative, the analyst believes.

Apple's annual shareholder meeting was held late last month, where Chief Executive Tim Cook admitted he is not happy with his company's stock performance over the last six months. But he also encouraged investors to think long term about Apple rather than concentrating on short-term trends.

The meeting went by without any movement toward a proposal from Einhorn, a hedge fund manager who made waves in suing Apple and attempting to persuade the company into providing preferred shares as a way to encourage investment and provide more of its cash to shareholders. For its part, Apple referred to the attention as a "sideshow."

Last week another prominent investor, Warren Buffett of Berkshire Hathaway, said he believes Apple should buy back more of its stock while it's at a depressed value. Beyond that, he said Apple's best strategy is to simply run its business well.

It's been almost a year since Apple announced its quarterly dividend and stock buyback plan, and with the company's annual shareholder meeting just concluded, one analyst believes Apple may soon reveal more uses for its $137 billion in cash.

Serious share buybacks would be the most logical thing since the stock is so severely undervalued.

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

@jd_in_sb serious shareholders, as in people who actually value a share of the company, don't want to grab that cash. They want the company to become more powerful, richer, stronger. Only short-term "investors" (hah) would want that.

Social Capitalist, dreamer and wise enough to know I'm never going to grow up anyway... so not trying anymore.

It is time for Apple to do more than tweak existing products and accumulating cash, and PLEASE, stop fumbling the roll out of those tweaks. I don't expect a new product every year, every other year or even every three years, but the time is ripe for something new.

Tell me why Apple should sit on cash, invest it in bonds, pay corporate taxes on those investments and then distribute some to shareholders in the form of dividends who then need to pay taxes also. Just distribute the cash and if investors want to put that money in bonds, you are removing the double taxation.

Tell me why Apple should "distribute" their cash that they earned?

Apple chose not to use the cash to invest more in R&D or production capacity.

Money ≠ more R/D. Heck, money ≠ production capacity. Not when you can't find workers.

They could have bought Disney a couple years back for content at half its current price and generated $60 billion in gains for shareholders.

1. Proof of gains?

2. Complete nonsense. Multiple orders of magnitude more complexity (Do you have any idea what Disney OWNS? and IS? and how they BEHAVE?) for zero gains.

They could have bought Yahoo, Twitter, etc., etc. for much, much less when the markets crashed a few years ago.

The point of which would have been what?

Google bought youtube and the value of that business has skyrocketed since and will continue to grow.

Haven't they ALWAYS lost money on YouTube?

They were in a position of power and simply chose not to invest to grow and hoard cash for no apparent reason

Exactly. The reason isn't apparent to you. I'm glad you at least acknowledge they have a reason.

and the position of power is now one of playing catch up

LOL, you'll have to be a little more creative than that.

How is that possible when Apple has all the resources in the world to beat anyone they want at any game. They are simply choosing not to. They are choosing not to go after markets that will increase profits as they stick to the 'we want to be good at only a few things' mantra.

Of course, you know these things because… ?

Current sentiment is basically that Tim Cook simply doesn't care about growing earnings or about his shareholders.

Do some serious Buybacks. Innovate faster (Excuse cannot be made that competitors copy) and smarter than Samdung and Google and make some great acquisitions! Don't just rely on hardware for longer term growth!

1. Amazon has a completely different business model. However, it is interesting that they have been extremely successful building their business WITHOUT sitting on a huge pile of of cash, which is being eroded by inflation every day.

Considering that they never generated a pile of cash comparable to Apple's, the fact that they're not sitting on one is pretty obvious.

A profitable business generates cash. You can do three things with the cash:
1. Buy things. (This is what Amazon has done).
2. Send the cash to investors
3. Keep the cash.

'Buy things' is not inherently better than 'Keep the cash'. In fact, unless the things you buy are intrinsically more valuable than the cash, it's a losing game. Apple has bought things, as well - but hasn't found enough things that justify spending the money. That doesn't mean that they won't find more tomorrow.

Quote:

Originally Posted by igriv

2. I agree that buying Disney would not have been wise.
3. Google now makes money on YouTube (or so people at Google tell me).

Even if true, 98% of their profits still come from search. To the extent that the purchase of Yahoo might have expanded their search business, it might have been a success, but the profit on Yahoo itself is incidental.

Quote:

Originally Posted by igriv

4. Apple's R&D spend is quite low (2.2% of revenue vs 5.7% for Samsung). R&D spend is not sufficient to innovate, but it IS necessary.

And, yet, Samsung deliberately and obviously has to copy Apple's products. Fortunately, Apple learned long ago to measure their R&D efforts by results, not by expenditures. If you can lead everyone else and completely reinvent a new market every few years, isn't it better if you can do that with only spending 2% of revenues rather than spending 3 times as much?

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

1. .
4. Apple's R&D spend is quite low (2.2% of revenue vs 5.7% for Samsung). R&D spend is not sufficient to innovate, but it IS necessary.

I doubt that it's wise to compare Samsung and Apple when it comes to R&D, unless you are pointing out how different their two businesses are. For starters, Apple doesn't do manufacturing of chips or displays (yet), nor their own hardware in almost any aspect. Apple's R&D has to be more targeted in line with what they can actually do themselves. They may be spending quite heavily, $10 billion a year or so, in what they are planning to do in the future. You'd need to break out their CapEx figures to say anything sensible. But you can't, of course.

The reason they aren't investing or using the cash isn't apparent to anyone outside the company.

Why does it have to be?

When customers are clamoring for something and the CEO basically says we could do it, but don't want to give customers what they want, how is that not arrogant?

Because you're just making up complete crap at this point.

Simple question. Do you want the company to just create cool new products or should they grow earnings.

Just create cool new products. The former begets the latter. Screw caring about the stock. Screw the stock market entirely. If they make desirable products, they will grow earnings. It's just that effing simple. Buying another company for the sole purpose of "increasing value" will do exactly the opposite.

Do you have any idea how vast Disney is, for example? Why would Apple want to buy an animation studio, a 3D animation studio, three live action film distribution studios, multiple theme parks, and the rights to the entirety of Marvel and Lucasfilm? Why would Apple want to streamline all of that while being forced to continue to promise everything that Disney had already promised? When Apple buys something, it's because they need it for a product they're already making. Disney offers zero products, zero ideas, and introduces multiple entirely new industries in which Apple has zero (and wants zero) presence but is now forced to manage.

Never mind that Apple owning some of the content it provides wouldn't sit will with, oh, everyone else with whom they contract in iTunes, et. al.

Apple the company and Apple the stock are two different things.

When you see those articles, you have to think about these things. The people that write them don't. All they think about is temporarily jacking up the stock price of whatever company Apple is "slated" to buy. That's the fundamental difference between Apple and these idiots: Apple couldn't care less about the stock since they care about their products. Others care only about the stock and their products suffer.

Apple trades at a low p/e because the market doesn't believe its margins are sustainable and see not enough top-line growth to offset the margin erosion. Articulating a long-term strategy would help the p/e. Further, buying back stock helps earnings per share grow.

That explanation is too simplistic.

Apple's P/E is under 7 after adjusting for cash. Wall Street on average is at 16 - and the average company is growing only slightly over GDP growth.

At its current price, Apple could lose more than half of its current profits and STILL be undervalued compared to the rest of the market. I can't imagine that anyone thinks that's a likely scenario.

Ultimately, it comes down to herd mentality. Someone starts a negative rumor about Apple and pretty soon it gets blown way out of proportion. Personally, I think that it's fostered by a large number of people who have axes to grind against Apple. I certainly saw it in the 90s when a lot of CIOs who should have known better were constantly spreading outright lies about Apple and its products.

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

We fundamentally disagree. I believe shareholders do have a right to know a company's strategy and what they intend to do with their assets, including cash. Over the short-term (ie couple years) do they have to tell shareholders their plans? No. But when a company goes many years accumulating an asset with no articulation of a plan for it, I believe shareholders are right in questioning.

What prevents Microsoft, Google, Samsung or any other competitor from buying Apple stock, or the stockholders of competing interests from buying stock? They would also be privy to every strategic plan and would theoretically have a vote.

If Tim Cook believes in the long-term value of Apple as he told shareholders to think long-term, he would be buying the stock at these levels. The inaction while sitting on mountains of cash can certainly be read to believe they think the stock goes even lower.

Given Apple is the 5th cheapest stock on the S&P 500, trading at a discount to the likes of HPQ, DELL, AMD, INTC, etc. it is quite scary that the Board and management don't see value in buying their own stock.

Apple is only a very short way from relinquishing the lead as the most valuable tech company in the world, with IBM about to pass it (enterprise value not market cap) and Google only slightly further behind. With a more pronounced drop in Apple and a move up in Samsung, even they could soon surpass Apple in value.

The disdain the market has for Tim Cook and his strategic moves (really lack thereof) is a reflection of a number of really, really bad decisions since taking over (maps, no traction with China Mobile, half-baked siri, no lower-cost phone, no large screen phone). It is time to put up or shut up. Anyone who bought the stock over the last year-plus has lost at least 20%. Apple's biggest competitors (Google and Samsung) are at their all-time highs. This is a Apple/Tim Cook problem. Silence and secrecy worked for Steve Jobs, but when the market has no faith in the leader of the company that will not work. A strategy needs to be articulated otherwise the market will believe their is none. Unfortunately even if articulated, Apple has to execute and despite Cook's supply chain prowess, even execution seems to be a major problem for the company under him.

Agreed!!! Tim Cook is a limp-noodle and certainly no SJ...SJ fooled anyone who invested in AAPL based on his personal recommendation Cook would kick-ass...hardly the case. Think long-term Mr. Cook? Ok, then WTF is the deal going to be if I decide to invest even more? Maybe cook and co. could elaborate if they want to stay the top dog, or maybe they care less, which at this point seems to be the case.

So lets theoretically say Apple dropped to $100/share. Below the value of the cash holdings. You would be opposed to using the cash to buyback the stock, effectively buying cash at less than its face value? While that example is specific to the cash, others like myself are simply valuing the business and saying the same thing, it is worth more, so go ahead and create value through financial engineering.

IBM is ONE example. And academics still debate over the value of the buyback. Those who believe the tactic was not that effective cite these numbers (I may not have precise figures so feel free to blast me after Googling): They spent something like $12B a couple of years ago buying back shares: Net result is approximate doubling of EPS. Clearly EPS gain would have been lower w/o buyback, but it would have increased anyhow (because IBM did not buy back 50% of its shares). Did the share price double? Nope. So, based on this simple argument, the buyback tactic did not work that well. Now, there is ways to turn the argument around, which just shows that it is not that simple to attribute gain in market cap to the buyback program.

In the other cases, the conclusion is clear - little effect even in the short term. I seriously doubt that, in 10 years, HP and Intel will look back and say, "Damn, money well spent." But there will be no regret either because they didn't know what else to do with the case. The lesser of two evils is dividend because the value to shareholders is immediate and clear.

Right, because the company known for keeping everything secret NOT telling you their most intimate plans is "unusual".

Dear Tallest Skil,

You make good counter arguements...if there were any. I am on Cook's side and AAPLs in general, but the small/retail investor gets killed in the AAPL game, unless your are a real player and owned shares outright between $5-$90.

But for the new type of AAPL investor from here on out, are you trying to tell me to believe in AAPL and put up $400+/share for an $8+ return per year when the value that initial valuation could easily drop from $400 to $300 or below? That is hardly worth the risk for a measily 2% dividend with a company whose superstar is permanently absent and a CEO who just smiles and says how intensely interested they are in certain areas.

AAPL is the best company, period...but right now they suck!!! Trying to time it will cost you at least $30k per expiration date, and investing purely on the way down is idiotic as well. Sell them short and the next day they will announce a 4 for 1 split, same dividend, and a major buy back.

Good luck making $$$ on APPL unles you bought it in 1995 or March 2009.

Originally Posted by TJRSV
But for the new type of AAPL investor from here on out, are you trying to tell me to believe in AAPL and put up $400+/share for an $8+ return per year when the value that initial valuation could easily drop from $400 to $300 or below? That is hardly worth the risk for a measily 2% dividend with a company whose superstar is permanently absent and a CEO who just smiles and says how intensely interested they are in certain areas.

I would think the idea would be to sell shares as they rise, not stick around hoping for dividends. Last year they rose $200 per share, not $8. You could make a tidy profit selling off some of that.

Dick Applebaum does it on occasion, I believe. He bought at opportune low points and sold when he felt it was a local high. Anyone who bought in 2003 would be quite happy selling now, much less when it was at 700. And now is a pretty good buying time otherwise, considering all projections are up.

IBM's earnings per share are growing faster than its revenue and nominal amount of net income. If the market uses a multiple of EPS to value the stock and the p/e is higher for higher growing EPS, isn't that a good thing? Maybe it is too simple and ridiculous but the difference with IBM is the market believes they have recurring revenue while Apple does not. IBM trades at a 12.5 p/e vs sub 10 for Apple and when you back out the cash the difference is even more dramatic. IBM nominal net income has grown somewhere around 5%/year for the last few, but EPS growing much faster due to the buyback.

Now if the simple fact is Apple EPS is going to flatline or drop like a rock from here even with buybacks, then yes, its not going to matter much if they buy the stock. IBM and HP are focused on markets in secular declines. Apple is focused on markets that are in growth mode still and are the markets that are actually hurting INTC and HP. Why then does Apple trade at valuation discounts to both those companies? I guess that is my point. Either the market is wrong and now is a good time to buy the stock with cash or things are about to get real bad in Cupertino. If Apple profits are shrinking materially from here as the market is pricing in with such low multiples while they are still in the early stages of smartphone/tablet/etc. growth, then this is truly a Apple-specific problem. Google is focused on mobile and is growing. The vast majority of Samsung's earnings growth is from mobile and they are growing. If Apple can't grow in an environment where its competitors are, then the strategy gets called into question and that is what we are seeing and why people want to hear Cook articulate a plan to grow earnings. Since Tim took over, the combined value of Apple/Goog/Samsung has increased materially. Apple's value has shrunk. That is the reality, not rumor or conjecture. The value pie in mobile is bigger than ever, but Apple is no longer participating. It is a fair question to ask why.

Apple is participating just fine, far better than any company. It's Apple shareholders who feel that they're not participating. Even that's only true when 8 month optics is applied. The opinions herein are all about what people have lost in last 8 months and want to rrgain in next few months, and nothing about what's good for Apple.

Btw, IBM's eps is indeed higher because of buyback. But to call it much higher would be pure hot air.Edited by ankleskater - 3/12/13 at 6:34am

Maybe a bottom is near because you have Apple being compared to Motorola, Blackberry and HTC today by the analyst at Jefferies who basically says Apple is toast and will follow the path of those companies. Says Samsung is killing Apple and sees no answers, any answer appears too late, mindset will have shifted to thinking Apple is 2nd tier provider by the time they release new devices to compete.

That is the current bearish mentality on this company. Management has shown they have nothing to change the sentiment. Listen, reality is you really don't know the true character of a man until he is challenged. Lots of people can handle being front runners, but until Tim Cook actually innovates and executes and re-takes the lead from Samsung, its very easy to argue he's the type that isn't able to lead as a challenger, isn't able to lead from behind.

There are good, valid reasons for stock buybacks (which, obviously, I don't agree with) and dividends (which I object less to), but your reasons here are not amongst them. In fact, your reasons right here are total rubbish.